After landing with a rather loud bump into the public sector in April 2017, HMRC’s somewhat divisive IR35 tax reform is set to affect those working in the private sector in 2020. Couple this with uncertainty over Brexit, and 2020 could prove to be a volatile year for employers and employees alike. We attempt to cast some clarity over the two biggest potential influencing factors in the world of work this year.
Let’s leave Brexit to one side for just one minute. Self-employed workers are already attempting to get their heads around the new IR35 legislation, and its arrival now looks a dead-cert after the conservatives secured a strong majority in the recent general election.
But what is IR35?
Well, The Intermediaries Legislation (or IR35) first reared its head in April 2000, to stop workers from classifying themselves as freelance contractors in order to pay less tax.
The legislation prevents contractors from filtering services through a limited company when in actual fact they are undertaking the same work as employees. In HMRC’s view, if a service constitutes full-time employment, the contractor is bound by IR35 and should be paying tax as if they were a full-time employee.
Why is it so controversial?
Largely because it removes the control from the contractors, and introduces a whole new set of grey areas in which to operate. Contractors will no longer be responsible for determining their own tax status unless they are employed by a small private sector company.
Most significantly, and the main reason for any concern, is the transfer of liability. If HMRC cannot reclaim tax from the paying entity, liability is deemed to lie at the doorstep of the private sector organisation. This unusual approach has led to extra caution from private sector companies, and a tightening of indemnity protection procedures.
OK, I know the implications, what should I be doing?
If your company employs consultants, it is vital that you begin to assess your working relationships to determine if:
– Contracts need to be revised or updated
– Tax for consultants should now be deducted at source
– A workforce restructure should be implemented
So, we’ve swerved the infamous ‘B’ word for as long as possible. Brexit is probably going to happen this year, although exact timings are still up for debate.
So how will leaving the European Union affect employers and employees in 2020?
Well, the UK government is keen to minimise the impact, and they are keen to stress that in most cases there will be no change to workplace rights, with or without a deal.
Very simply, employment rights for workers in Britain can be divided into three sectors. The first are national terms with no EU obligations, and for which Brexit will have no impact. This includes the National Minimum Wage and National Living Wage. The second were introduced as a result of EU direction, these include equal rights for agency employees, limits on the length of the working day, and rules concerning information and consultation. The third, and most difficult to underpin, are laws where British legislation has been altered by EU measures.
What happens exactly to these rights remains to be seen. But the UK government is keen to keen the limit impact on the British workplace as much as possible, aiming for a smooth and easy transition.